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Hedge Fund Investors Plan to Chase Returns in Emerging Markets

For hedge fund investors, emerging markets are the place to be.

Hedge Fund Investors Plan to Chase Returns in Emerging Markets
Pedestrians walk past a roadside market in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

(Bloomberg) -- For hedge fund investors, emerging markets are the place to be.

About 33 percent of institutional investors plan to give more capital to emerging-market strategies this year, according to a JPMorgan Chase & Co. survey released Thursday. Approximately 20 percent expect to increase allocations to event-driven and quantitative-equity funds, while about 10 percent will devote less capital to fund of funds.

After years of underperformance by the hedge fund industry, investors are chasing returns in Asia. Hedge funds focused on emerging markets, particularly China and India, were the top-performing strategies last year, surging 20 percent and reaching a record of about $230 billion in assets under management in the fourth quarter, according to Hedge Fund Research. Quantitative funds, which have struggled in calmer markets, are positioned to benefit from increased volatility and rising interest rates.

Hedge Fund Investors Plan to Chase Returns in Emerging Markets

Geographically, 42 percent of investors expect to boost exposure to Europe while 18 percent plan to cut it in North America, according to the survey.

“Institutional investors have been under-allocated to both Europe and Asia and performance in both regions has been so strong that you can’t ignore it now,” said Alessandra Tocco, managing director and global head of JPMorgan’s Capital Advisory Group. “We’re also seeing more and more fund launches in China, as the markets continue opening up to outside investors.”

Asia Hedge Funds Attract More Money Than Europe, Americas: Chart

Macro funds, which bet on broad economic trends, gathered the highest inflows last year, even though they were the worst-performing strategy, according to HFR. They may see a small bump up in 2018, according to the survey, as investors plan to reallocate capital across different managers.

Investors have been warming to new launches, with 71 percent of respondents saying they were willing to allocate capital to startups in 2017, up from 38 percent in 2016. This year a number of big-name managers, such as Daniel Sundheim and Michael Gelband, are starting firms.

Most investors plan to maintain their overall hedge fund exposure at current levels, according to the survey, which tallied responses from 251 institutional investors with about $600 billion allocated to hedge funds at the end of 2017.

To contact the reporter on this story: Melissa Karsh in New York at mkarsh@bloomberg.net.

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Vincent Bielski, Josh Friedman

©2018 Bloomberg L.P.